Leaders say that after much difficult reform, boards now must turn their attention to the execution of strategy

Arthur Sawchuk believes it is time for corporate boards to go beyond the current preoccupation with protecting value and get back to the business of creating it. ''If you don't start creating value, somebody else out there is going to eat your lunch,'' warns Mr. Sawchuk, chairman of Manulife Financial Corp.

"What goes on in the boardroom has to come back to spending more time on the future and the opportunities and a little less time on what I'll call covering your butt," he said in a recent interview.

Manulife finished with top marks in the Report on Business assessment of corporate boards this year, a place it also claimed in 2002, the first year of the ranking. Since then, no one could accuse the Toronto-based insurer of shying away from opportunity. In April, it closed an $18-billion merger with Boston-based John Hancock Financial Services Inc. that made it the largest company in Canada measured by market capitalization.

Mr. Sawchuk said such bold moves are necessary if Canadian companies are going to "grow up" and play on the international stage. And to do that, Canadian boards must also raise their game and make sure they are fully engaged.

It's a challenge that many of Canada's top boards face.

After years of making changes to board structures such as separating the jobs of chairman and chief executive officer and developing new such practices as director reviews and private, director-only sessions, the leaders of many of this year's top-ranking boards say their primary focus must be on getting the job done.

While none say they are finished with governance reforms and many say there is still plenty of work to be done, particularly in the areas of executive compensation and improved disclosure, they say their main focus must be on execution at the board level.

More often than not, that involves the development of strategy for international expansion and overseeing the implementation of those plans.

"Almost every board I sit on, one of the big challenges for the company is how do they grow internationally, and that is a tough issue," said David O'Brien, who is chairman of both Royal Bank of Canada and EnCana Corp., and a director on several other major boards. "Every board has to face how do you get out there and do it and do it effectively and have the time to get results from it as opposed to having everyone yelling at you in the first year. It is not easy."

Royal Bank, which finished fifth in this year's ranking along with six other companies, is widely expected to take a writedown on its troubled U.S. expansion efforts.

Mr. O'Brien, former CEO of the old CP conglomerate before it was split up, also sits on the board of Fairmont Hotels & Resorts Inc., where he has had a front-row seat to the perils of foreign expansion.

The luxury hotel chain took it from all sides in recent years with its revenues rocked by terrorist fears, wars, hurricanes and the SARS outbreak -- all events that were never anticipated in any strategic planning board retreat. The company made it through those challenging times, he said, because management and the board had crafted a robust plan that stood up to the crisis.

"You have to be realistic. Business is business," he said. "Even with the best minds working on an issue, changed circumstances can result in difficulties."

For that reason, he said, it is critically important at such times that directors do their job. "The board better be engaged and have enough knowledge." Mr. O'Brien said, calling it, "early days" for RBC's U.S. efforts. "It is tougher doing something outside your own territory. "

David McLean, chairman of Canadian National Railway Co., another firm that tied for fifth, said major expansion or sales of existing holdings by their very nature demand that directors step up to the plate.

"The board has to get involved and get involved in a major way," he said. "At the end of the day they decide . . . not the CEO, not the management. We are the trustees of the assets, so before any major decision gets made I am going to make sure that the board gets into it."

Chairmen at the top-ranked boards say raising and maintaining that level of engagement is a constant priority, as is building the board as a working group. And all say their role as independent chairman is central to that job.

Bank of Montreal chairman David Galloway, the newest independent chairman in the top-ranked list, said he believes the role of the independent chair gives chief executive officers more time to do what they were hired to do -- run a company. As well, he said that in his own experience as the CEO of Torstar Corp., he found that having someone else deal with board issues was very liberating.

"I would say to any chairman and CEO who is trying to hang onto the role they are making a mistake," he said. "They think they are giving up some power, but the truth is it is going to free them up to get on with their job."

Conrad Pinette, chairman of second-place Finning International Inc., said his role as independent chair eliminates the confusion of roles that can take place when a CEO wears two hats. "With an independent chair, the CEO is presenting management's position and the chairman has to manage the board. That's very important."

But many also say that the chairman of a well-functioning board is more like a first among equals than the boss of the board.

"If you have a strong board, the independent chair may be less important except as a conduit to the CEO when the board has strong views," Mr. O'Brien said. "A lot of my contemporaries are smart, able people. They don't need me to band them together."

Mr. Sawchuk said that as well as working together, he encourages his board to step back and look at what he calls "first principles" when they are facing a tough decision. Boards, he says, are often too eager to begin with tactics instead of looking at the whole picture.

"When you dive right in and discuss tactics, what wins out is the loudest mouth or the most aggressive person in the room," he said. He believes it is the job of chairman to make sure that does not happen.

Looking forward to future changes, many chairmen singled out executive compensation as an area where there is still plenty of work to be done.

It also is an area made even more difficult by international acquisitions or expansion, as Mr. Sawchuk and the board at Manulife witnessed this year.

"Once we acquired Hancock, we had a whole new ballgame," he said, a reference to the comparatively high pay at the U.S. insurer. John Hancock CEO David D'Alessandro gained attention for his compensation package, which topped $21-million (U.S.) in salary and stock options in 2002. Manulife CEO Dominic D'Alessandro, by comparison, made $3.6-million (Canadian) in 2002 and $7.5-million last year. This June, Manulife confirmed that the Mr. D'Alessandro from John Hancock would step down as chief operating officer in November with a $16.5-million (U.S.) severance package.

"There is a lot of emotion about executive compensation," Mr. Sawchuk said. "There are and have been some outrageous practices in that area."

To move away from this, Mr. Sawchuk said boards and their compensation committees need to consider executive compensation as a whole package that includes not only salary and bonuses, but also pensions and benefits, severance packages and change of control agreements.

He said boards need to think about what they are rewarding and why and focus less on pay scales.

"We have to be careful not to respond to quick and dirty pressures," he said.

Compensation is also an area where many said they are hearing from investors who are looking for more comprehensive disclosure.

At Bank of Montreal, Mr. Galloway said this has especially been the case with the hot-button issue of executive pensions.

"We are hearing about disclosure -- the funds have asked for this and rightly so on pensions," he said. "I think we haven't done a good enough job on that. Will we fix that? The answer is yes."

Still, Mr. Galloway said he is worried that more disclosure, while justified, may also serve as a catalyst to push up pension costs.

"It's hard to argue against disclosure and there is no question that shareholders have the right to know," he said. "When the pension is fully disclosed and the CEO across the street gets this -- the comparisons don't generally bring things down to the bottom. They rise to the top. I think shareholders should know. It is just too bad about the effect."

Mr. Pinette at Finning sees the trend to more disclosure as a positive move that investors are definitely demanding.

"A lot of our shareholders are very sophisticated," he said. "The more information you can give, the more confident they will be in the board and in their investment."

At Manulife, Mr. Sawchuk worries that Canadian companies operating in the United States may be punished at some point for their increasing openness. Given the current climate of investor legal action, he said the trend among U.S. companies is certainly to disclose only what is required.

"It is a very different world," said Mr. Sawchuk who sits on the board of the U.S. forest products company Bowater Inc. "The trend here is to more and more disclosure -- more transparency and openness. In America that is not well received. The perspective there is the more you print, the more you are open to frivolous suits and claim."

Advocating more disclosure to a U.S. board would be a "very big egg to sell," he said. "We are maybe a little naive on this point."

And while some chairmen worry that too much time is now being spent on procedural governance issues such as director evaluations, they also acknowledge that even at the best boards there is work to be done.

"You can always learn," said Mr. McLean at CN, noting that the firm stopped granting options to directors and implemented share ownership guidelines in response to changing market expectations.

Mr. O'Brien also sees boards as a work in progress.

"Boards are certainly more engaged than they were. They spend more time at it and on balance they probably question management more than was previously the case. How effective they are at it? It is improving, but it has a long way to go."

What are the biggest challenges?

'(On) almost every board I sit on, one of the big challenges for the company is how do they grow internationally and that is a tough issue'

DAVID O'BRIEN CHAIRMAN OF THE ROYAL BANK OF CANADA AND ENCANA CORP.

Why split the role of CEO and chairman?

'I would say to any chairman and CEO who is trying to hang onto the role that they are making a mistake. ...The truth is it going to free them up to get on with their job'

DAVID GALLOWAY CHAIRMAN OF THE BANK OF MONTREAL

Why should boards become engaged?

'The board has to get involved and get involved in a major way. At end of the day they decide... not the CEO, not the management'

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